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The land bubble

I have shown previously that the escalation of Australian housing values since the late-1990s has been caused, primarily, by an increase in land values rather than construction costs (see below chart).

Now RP Data has released statistics showing the extraordinary (literally) escalation of land costs across Australia’s capital cities:

Importantly, the median sale price for land has increased substantially despite the size of the blocks being sold shrinking across all major markets over the past decade, meaning that your average buyer of a house and land package is paying more for less:

Accordingly, the price per square metre of land has increased as follows over the past decade:

Comments

One small point re Graph #1 – To best visually communicate the flat level of structure cost component over time wouldn’t it be better to display stucture costs component underneath the land cost component?

Leith, have you seen John Mauldin’s latest letter “Australia: Running Out of Luck Down Under”?

By Jonathan Tepper, Variant Perception

Australia has been described as the lucky country, but it is running out of luck and has a terrible combination of fundamental factors. In fact, Australia reminds us in many ways of the housing bubbles in the UK, Spain and Ireland. In each case, the country experienced a banking crisis.

Australian growth has been dependent on two huge bubbles: a domestic housing market that is one of the most overvalued in the world and a reliance on the Chinese fixed asset investment craze. Despite extraordinary commodity exports, Australia has run current account deficits and has a terrible international investment position. A substantially weaker currency in Australia is inevitable given fundamental factors. Oversized banks dependent on external financing, a bursting housing bubble and a slowing Chinese economy are all fundamental factors which are likely to weigh on the currency. As we explain, a weaker currency can either come in the form of the Reserve Bank of Australia (RBA) reducing interest rates or a balance of payment-like crisis in which foreigners pull funding from the banking sector. In both cases, the RBA would likely have to expand domestic liquidity substantially to prop up the banking system.

Here in New Zealand we are now talking very much in terms of housing costs ALL UP per square metre. On the fringes of the affordable US markets, new starter stock is in the order of $US600 per square metre ALL UP – here in New Zealand $NZ2,500 per square metre ALL UP and beyond. To get a fix on this, read my article of a couple of years back HOUSTON: WE HAVE A HOUSING AFFORDABILITY PROBLEM –

So…..since the time of the Levitts following WW11 (the creators of our modern residential production industry – refer http://www.PerformanceUrbanPlanning.org ) when these clever guys put in place 80 square metre units on 700 square metre lots for $US8,000 – it worked out at $US100 per square metre ALL UP then. Over the past 65 years on the fringes of the affordable US housing markets it has moved up to around $US600 per square metre ALL UP.

It sure would be interesting to see a graph of the per square metre costs ALL UP for Australian housing over that time frame.

but what has been ignored here is the costs involved in converting serviced land into land fit for development.Until all costs and charges are laid out and how they have varied over the decade is shown this analysis is incomplete. Apologies

That would make a good future article, to see the various components of that land price bubble. I suspect it would be fairly involved teasing out the various components though.

Having said that, this lays the problem out in a very clear way, and makes a mockery of all those false claims that it’s because we are building ‘huge Mcmansions’ that housing is too expensive, and if only you greedy young aussies would moderate your demands you too could afford a house. (which kind of ignores the fact that previous generations would have bought the latest & greatest available to them)

But if you read a good authoritative text book on land economics, such as “Economics and Land Use Planning” by Alan W. Evans, you will learn that if the unnaturally high equilibrium price set by demand and INELASTIC supply is already far higher than costs of development and fees can explain, reducing the costs and/or the fees will not do anything to the equilibrium price. All that will happen is that the original “land bankers” will make more profit.

Government has done something very bad to the supply and demand of starter homes which has led to outrageous prices of starter homes, and supported much higher prices of better homes. In short, government has poked the demand and choked the supply of starter/marginal/extra homes.

Poking Demand:

* Government brings in many immigrants

Choking Supply:

* Government refuses permission to build extra housing on the fringe or extra units in the city, and new cities
* Government adds taxes, charges and levies to extra housing
* Government requires onerous compliance with regulations
* Government creates delays in approving dwellings.
* Government neglects transport and other infrastructure which reduces the area in which well-located and well-serviced homes can be built

There is much debate on which of the five chokers (refusal, taxes, compliance, delays, neglect) is the biggest and baddest. Interestingly, if refusal is the big one, then lowering taxes will give a windfall to developers, whereas if refusal is a small one, then reducing taxes will cause a drop in prices. This debate is fascinating from an academic point of view, but rather pointless if the aim is to solve the housing crisis.

It is like watching a man being attacked by five dogs and debating which dog has the bigger bite. Far better to chase off ALL the dogs and save the man.

We have prostrated ourselves before the false god LAND too long. We privilege it with tax concessions and ration it out in the most patronizing manner in smaller and smaller parcels to citizens.

While the exact timing and profile of the revert to mean in land prices eludes us, make no mistake: current price/wage and price/rent ratios are unsustainable and if the massive private debt secured on land is repaid, it will be in blood.

Ken Henry offered government a blueprint for success and achievement that would have driven prosperity for decades. Instead, we are trapped in a morass of tax and disincentive that stifles enterprise and advantages lazy wealth invested in land.

Embrace Land Value Tax, remove those 125 very bad taxes and re-position Australia for universal prosperity.

These are macro tasks for the federal government, but there is something you can do today:

Thanks for the report DC. The only comment I would make regarding implementing the recommendations is that KH was very reluctant to talk about Negative Gearing in detail. The media amplifier would of course have people in hysterics at the mere mention of the subject – threatening the great wealth generator.
Judging by Swan and other’s performance since, I certainly won’t be holding my breath waiting for change..

NG is a tough one. To limit it cuts across an important tax principle that allows one’s losses here to be offset against profits there. I don’t say this principle trumps all, but be careful in fiddling with the rules.

IMHO the ‘Gearers are toast, all 1.2 million of them. The are currently confronted by an exquisite ‘Prisoners Dilemma’ – the first to capitulate and sell loses least.

Agreed, I’m thinking of the difference between NG being the offsetting of capital gains against capital losses (perfectly reasonable), and being able to offset against earned income tax (diabolical).
It will be hard to wean the country off it, especially to do so in an equitable way with regard to people with existing NG’d investments.

I must say that’s a fine example of Teamwork..in-so and why stop at 250-300% price increases..after all we are the Lucky Country,I mean lets do it different and find another way,being in-all that’s needed is to get little Johnny back to import an extra 1 million people or-so,all in-whilst teaming in-partnership with Kevin,who in-turn could be charged with quadrupling the FHBG to stimulation,for us,as as from there it will only cost a couple of million extra in a bank managers pay-packet to pro-cure the 100 year mortgages,necessary …in-making sure to take note to call them ‘Invester-Gations’ so as the authorities can’t see them to…Finishing
problems solved n should last about Ten years,and Ten after that it’s my retirement..Bonus!,n even-better,n at that n I highly recommend this coarse of action ,as personally myself I’ll be right…or should I say relaxed.
Thanks UE ,Cheers JR

Of all the states re land prices etc, Tassie would have to be the one that stands out. They haven’t actually had an increase in population for about 15 years i believe yet a 400% plus increase.
It would be interesting to see how many own IP’s. This is probably a clear example of rent assistance floating all boats.

I lived in Adelaide (Flagstaff Hill) for most of the 90’s when I first came to Aus. I now live in Brisbane & can confirm that Adelaide has a much fiercer population of both nocturnal mozzies (the bu@@ers can bite you through a sock) and daylight bombers. I distinctly remember a few of us looking at a big hollow tree trunk a 100 meters away at dusk, thinking someone had set fire to it. When we walked over to it, the smoke turned out to be several million mozzies exiting for an evening’s entertainment. We ran, taking our kids with us….

Excellent analysis. I live in Perth and we have been watching the market from the sidelines since we arrived here in 2007. But lets not assume this is just a consequence of new estates offering much smaller blocks. One of the major trends underway in all of the inner suburbs (<10kms from CBD) is that the typical block of 800-1000m2 in these suburbs with a 3×1 or a 4×2 is bought and then subdivided into 2 blocks with a new house built behind the existing one…lately the same size blocks are being subdivided into 3 titles. We are interested in a minimum of 600m2 but the use of that as a filter in our web searches typically removes more 90% of properties listed for sale in these suburbs, either because land size is not listed at all, or the land is <600m2. The houses being built are typically 4×2, and increasingly 2 storey in order to get in the home theatre room, 3rd toilet etc…most of the new houses now have no eaves, and windows which look out on the walls of the neighbouring mansion 2 metres away. Incidentally, a major constraint on us finding what we are looking for is the simple fact that most of the blocks in this city are laid out on a long axis north south pattern, thereby ensuring maximum costs for heating and cooling. The blocks are typically long and narrow so, even if correctly orientated, if the neighbours on the northern side have built a 2 storey mansion….you will get no winter sun at all….unless you do the same and pass the problem onto your southern neighbour. Having lived in Germany we have been astonished at the lack of planning and the rampant speculation in land here.

Should add of course…that when the mining infrastructure construction boom ends here in the next few years, the outmigration of people drawn here by that boom, coupled with the many boomers with negatively geared IP that are retiring should see a dramatic fall in housing demand in this city. So that amazing increase in land prices, might just turn into a just as amazing fall in land prices.

I’m in as long as we’re talking about tax on unimproved land as opposed to taxes based on the imputed rental income of the property they own (ie akin to council rates).
Forgetting “investment” properties for the moment, the idea of taxing people on the equity of their home value is grossly inequitable. Measures like these largely target the elderly who have, over a lifetime of work, payed off their debts.
Firstly, they are in no way responsible as a group for the easy credit and restrictive building legislation that brought about the existing problems.
Secondly, they have saved and paid their taxes and have frequently lived working lives a lot tougher than your nanny state would permit today.
Thirdly, uninformed talk about comfortable pensions that the boomers get overlooks the fact that the cost of maintaining their health rockets once they get past 60. A great many of them are struggling to pay private health premiums. Why private health insurance? – anyone who’s been to a state hospital recently can tell you what it’s like – not a great experience.
Just to make it easy for some of you, imagine you have just bought a new car, your pride & joy for cash. You now get a knock on the door and some government flunky tells you that you’re going to have to pay a tax on the imputed income that that model of car would earn if it was rented out.
Give me a break.

Exactly. Land Value Tax is on the market value of unimproved land, leaving structures untaxed. Have a look at Leith’s first graph again, which shows with blinding clarity the natural base for government revenue, particularly as it would act as an automatic stabilizer of land prices (advancing and retreating as they change).

The profound economic damage this land boom is causing may not yet be apparent to everyone, but it will be soon – at least to those with high levels of debt secured on land.

Firstly, they are in no way responsible as a group for the easy credit and restrictive building legislation that brought about the existing problems.

Tax is based on beneficiaryies, not responsible parties.

See Leith’s first graph, see how much that shade of blue increased? The proposal is tax that, it’s an unearned benefit.

Then we go back to Adam Smith’s invisible hand, the likes that Gerry harvey and Heather Ridout too stupid to understand or too complacent to enforce.

It is in no one’s interest for that shade of blue to increase, in fact with an ever increasing productive society, that should decrease if anything.

Tax is how you modify behaviour, and such a tax minimises that shade of blue impairing the rest of the economy.

Secondly, they have saved and paid their taxes and have frequently lived working lives a lot tougher than your nanny state would permit today.

The nanny state started in 1944 under Chifley, that is 66 years ago. That’s a majority of the population and we are talking about commencing reform now.

Thirdly, uninformed talk about comfortable pensions that the boomers get overlooks the fact that the cost of maintaining their health rockets once they get past 60. A great many of them are struggling to pay private health premiums. Why private health insurance? – anyone who’s been to a state hospital recently can tell you what it’s like – not a great experience

Anyone tell you that once you’ve paid off your mortgage, especially when much of it has been amortised away in the greatest inflation period since the Spanish repatriated New World gold back to Europe doesn’t incur a lot of costs.

Unless of course they decided to acquire 2nd, 3rdand 4th mortgages at the peak of a housing bubble.

You know why state hospitals are in some state of poro function?

Because we have cut taxes, tax cuts gifted to empty nesters, when historically it has been their turn to underwrite social services when they are at peak earning powers.

They decided to use to tax cuts as irrational investors and fuel a housing bubble.

1)They’re not a beneficiary until they sell it. And that will happen when they go to a nursing home

2) Agreed it’s in no-one’s interest for property prices to inflate, except the inheriting family of the owner’s. That’s what European inheritance taxes are about.

3) I assume by tax modifying behaviour, you mean that “empty nesters” should be forced out of the homes they may have lived in for most of their lives in order for a new member of Big Australia & their family to move in.

4)Working conditions have changed far more in the last 20 years than any similar period since the immediate post WW2. I started work washing dishes at Heathrow airport when I was 15. You got 5 quid for a 44 hour week, you did it with your hands (no gloves) and you didn’t stop just because you cut your hands on broken glass in the sink. Try that on nowadays – yes, you bet it was harder.

5)Who’s “anyone”? My pension is likely to be a revolver with one round. The GFC nicely polished that off. Super fund managers often charge fees based on the size of your super, not on a fixed amount basis. My partner’s compulsory super paid when she did 1 year of private work was worth less than she put into it according to what we learned the other week.

6)Agreed about tax cuts fueling non-productive investment. Blame Howard for starting it and the Labour party for betraying all their principles by not stopping it.

7)“irrational Investors” are the entire human race. Every market is composed of a balance of fear & greed. Gen X & Gen Y won’t be one iota different.

1)They’re not a beneficiary until they sell it. And that will happen when they go to a nursing home

I have no problem with land tax due being accrued against the capital of the house, and recouped when sold for reirees.

2) Agreed it’s in no-one’s interest for property prices to inflate, except the inheriting family of the owner’s. That’s what European inheritance taxes are about.

OK.

That’s a statement, not an argument.

3) I assume by tax modifying behaviour, you mean that “empty nesters” should be forced out of the homes they may have lived in for most of their lives in order for a new member of Big Australia & their family to move in.

No, I mean by stop flooding 60% of investment monies into residential property.

If investment property becomes aless attractive option, then other investment options will be sought.

4)Working conditions have changed far more in the last 20 years than any similar period since the immediate post WW2. I started work washing dishes at Heathrow airport when I was 15. You got 5 quid for a 44 hour week, you did it with your hands (no gloves) and you didn’t stop just because you cut your hands on broken glass in the sink. Try that on nowadays – yes, you bet it was harder.

Working hours have increased in an upward linear fashion since the mid 80’s in Australia.

Now wages, we have seen that the real wages of males in the U.S has been stagnant since 1971, whilst enduring decreased job security, but the pay off is rubber gloves when washing dishes ehh?

Similar patterns are emerging here.

And most importantly, wage share has decreased from 62% in the mid 1970’s to 55% now, in Australia.

People who seel their labour are seeing less benefit from the economy. In no way is this debatable. What we are seeing is an increased proportion go to those that don’t work.

5)Who’s “anyone”? My pension is likely to be a revolver with one round. The GFC nicely polished that off. Super fund managers often charge fees based on the size of your super, not on a fixed amount basis. My partner’s compulsory super paid when she did 1 year of private work was worth less than she put into it according to what we learned the other week.

Assets can decrease in value. You could have put the entire amount in cash. But still, that isn’t really relevant to the amount of money that BB’s should have saved for your retirement. They were gifted cheap housing and had the debt amortised away by high inflation.

That is a gift greater than any generation in history, and they are still whinging.

6)Agreed about tax cuts fueling non-productive investment. Blame Howard for starting it and the Labour party for betraying all their principles by not stopping it.

Why just them, they are captive to the desires of the electorate, which the boomers have hegemony over.

7)“irrational Investors” are the entire human race. Every market is composed of a balance of fear & greed. Gen X & Gen Y won’t be one iota different.

I didn’t say it would be different. Greed is universal and all pervasive.

We should have policy at all times to counter it. We dismantled it because the boomers wanted to optmise their greed at the expense of all other generations, before and after.

Other genrations know they themserlves are greedy. However we’re not blind to the fact that it is destructive.

We are now living the consequences of such destructive behaviour, and we want reform.

What we also don’t want is obstructionist behaviour along the lines of ‘you just want cheap housing’

We could go on all day, but I’ll agree cheap housing was a benefit that is unlikely to return in the near future. Neither of my children can afford their own home and that does concern me very much. The only thing I’ll take issue with is “why just them?” when talking of Labour. Aren’t They supposed to be the party of social responsibility? What would Keating have done, I wonder?

RP, your point about the reduced proportion of GDP flowing to wages is not a point at all unless you examine the level of capital employed in the economy. The Australian economy has had huge inflows of capital investment over the last twenty or so years. As a consequence, the profit share of GDP has increased. This is inevitable, since the capital will be withdrawn if it does not earn a reasonable rate of return (ie less than could be obtained elsewhere). However, this is an advantage to our economy, since capital investment is what makes for higher productivity. Higher productivity = more wealth. Some of this accrues to the owners of capital, some of it flows through to higher wages. Wages may be a smaller share of GDP, but they are higher than they would have been in the absence of the capital investment.

Even with wage share and profit share staying constant in proportion, the nominal return of profit share is nominally larger as GDP increases.

As is the nominal return to labour (wages). But we are looking at a situation where the amount of labour and the amount of capital are not fixed. Both are increasing, with capital increasing faster. Ergo, the proportion of GDP accruing as returns to capital is higher.

i>Increased GDP, i.e. increased product brought to market, needs a corresponding increase in purchasing power (aggregate demand) to acquire the new product.

Exports? Dividend repatriation to overseas investors? Aren’t they included in GDP?

What are the suburbs covered by the capital city of Perth in these figures?

As Russell says above, its government policy to break up bigger blocks in suburbs and ‘infill’ with new housing.Or to subdivide state owned land in the exisitng suburbs where possible into small multi house blocks. So its understandable that the plots get smaller. And as the plots are in existing suburbs with all facilities and often close good transport links into the CBD the demand is there and prices higher.

I do not know if there are any similar reasons for land prices relative to reducing plot sizes in other ‘capital cities’.

In this state apart from council rates on all homes there is already a land tax on IPs or even your own home if for any reason you have to rent it out.
In my opinion there is no purpose served in introducing land tax on homes. Any government suggesting this deserves to be turfed out of power.

Maybe the rational consumer is prepared to pay more for the smaller block of land due to the convenience of exisitng facilities? A smaller block does not necessarily mean a lower price.

As for others commening that a new land tax would remove the need for 125 other taxes, has anyone seen any pollie removing any other taxes if he can get away with keeping them all?. This will just be another impost on homeowners making Australia an even more expensive place to live. Its bad social policy.

Finally just becasue Ken Henry has set out some suggested policy does not make it a correct one. Just look at the abomination of his original idea on resource rent tax.

I disagree with your final paragraph – the Resources Super Profits Tax (the idea of the group that Ken Henry led – not the MRRT) – was a brilliant idea.

Unlike the MRRT, it would not have detracted from investment (because mining companies would only make 60% of the profit but would also only have to stump up 60% of the equity, hence the ROE is neutral).

Just becasue I don’t live in that part of Australia (or even if I do – ask the farmers on the Darling Downs or Liverpool Plains), I am still a part-owner of Australia and deserve to benefit when Australia (or part of it) is dug up and sent to China forever.

I have, including my farm, and came to the conclusion that it’s in the best interest of my my 6yo son and his peers that I do so. What it will do is lower the amount I’m willing to pay for my next purchases. Some degree of grandfathering (for recent purchases) and pension adjustments (as mentioned by Bryan Kav above) should be able to take care of the real ‘poor widow’ demographic.

Not only might it act as a brake on non-productivity-based growth in the equity of existing landowners, it might go some way to stem profligate state government spending in response to booms in stamp duty revenues.

Much as I can commend your altruism, I’m not sure that a lot of people have the necessary resources to pay those taxes. The way to prevent non-productivity based growth must be changing the laws benefiting investment activities and the taxation of land banking activity.
The fact that government spending is profligate (and I entirely agree) is a different issue to the way in which their money is raised.

As an aside, inheritance taxes are common in Europe, and when resonably applied are regarded as a lot fairer (especially to the late elderly..)than rates based on imputed wealth. They also have the effect of shrinking large estates.

Rob, LVT and RSPT fund the removal of 125 taxes. This does not increase your tax burden, but does remove the deadweight costs attached to the existing very bad taxes. You watch the economy fly when these unnecessary costs are removed. Imagine a tiny tax bureaucracy and tiny tax accountant profession.

So what you’re saying is Sydney has the most responsive policy out of the lot?
Sydney land prices boomed before all the other capital cities. Start your figures in the mid 80’s and it would be obvious.

Sydney has operated restrictive urban planning policies for decades, whereas they are relatively new (late-1990s / early-2000s) in the other capitals. It also has greater geographical barriers to supply.

This disparity would be even worse if the structure costs took into account the size and quality of the structures. Not only are new homes larger now than in 1989, they are also much more energy efficient.

Not so sure they are more energy efficient. Most here in Perth are very poorly constructed, with doors that leak air, windows of the poorest quality of glass, no regard for orientation of house on block, no eaves to remove effects of summer sun on exposed walls (most houses here lie with the long access lying north south, exposing maximum area of walls to summer sun, and minimum area of walls to winter sun, lack of vents in roof cavity, poor design of window positions in (which walls, position on wall) relation to prevailing wind directions (mostly not even considered), ‘fashionable’ black roofing….I could go on about this for some time..

Well we agree on something. My house is 4 years old, described by the architect who inspected it on purchase 1 year ago as “better built than most”.
6 weeks ago, a 4 by 3 meter section of the plasterboard roof above the patio collapsed without warning at 4am, followed 16 hours later by the rest of it.
Reason? No requirement for sarking in rooves more than 1.8 meters from a down pipe. No proper standard despite multiple instances of this happening due to condensation between the joists & the plasterboard ceiling. Add that to the fact that the cornices (supporting the plasterboard ceiling) were not screwed in….. The original builder fixed it FOC, but still…

Good on you nqdave! Yes, the critical thing is to have an ‘all-in’ tax on land values, so NONE of us can wriggle out of it. At the moment, land value wealthy people and mega companies (including the banks, BTW) can claw back everything they’ve ever paid in income tax, and then some, via the uplift in their land values. Property billionaire Harry Trugiboff has boasted publicly he pays no net tax after these increases.

You don’t mind being played for a bunny though, Rob? Or perhaps YOU are playing us for one, too?

I wonder how today’s young view these massive price increases. Do they think it is fair.
One good thing I can say about the boomer generation is that they would never have allowed themselves to be ripped-off in this fashion. They would have been demonstrating in the streets. What will today’s young people do about it?

Gen Y & Gen X and anyone else priced out of the housing market should be demonstrating in front of government buildings on a regular basis. They should make sure the government realises that each year i)Boomers retire and no longer need negative gearing and ii) more young people find themselves locked out of the housing market. As such its only a matter of time until the population votes in the party who will get rid of negative gearing!!

Many of us are protesting via a buyer’s strike, which I think is the most powerful protest of all. The market will remain screwed until prices drop far enough or the difference between current and fair value is eaten up by inflation.

I don’t believe there is such a thing as a buyer’s strike. Sure, some prospective buyers may decide to postpone buying because they believe prices will continue to fall and some prospective buyers because they can’t afford to buy what they want but that is far from being a buyer’s strike. Given half a chance the prospective buyer would jump at the opportunity to buy the house he desires if he could meet the price asked. The market will likely remain screwed for a while but I believe that we won’t see any further major price drops. As long as the amount of new properties supply is kept in check and net overseas migration continues as it does currently it will be the increasing rents that will force people on the sideline to take the plunge and kickstart the next property boom sometimes in the second half of next year.

No matter how many times I read this stuff, I never stop saying how lucky my wife and I were to have bought our little block of land and built on it in 1998. A bare block of land here is now several times what I owe for everything.

My only hope is that by the time our son is old enough to go out into the world by himself, the price of ownership of the basic human need for shelter from the elements will have resumed some sembalence of sanity.

I am just wondering whether there are more and more people going it rough. My younger brother is a keen mountain bike rider and he remarked that there are more and more people living in the National Park in tents, including couples and using the ammenities in town. I am referring to the Royal National Park near Engadine

There is an organisation in the UK called “AudaCity” which has been advocating for years that the young form co-operatives, buy farmland legally, and build “illegal” housing on it. And defy the authorities to come and tear it down.

The authorities have certainly sent in the police and the bulldozers whenever Gypsies do this, as they are wont to.

‘Government is the primary cause of many such problems, then it comes up with solutions to make it worse’

I see many comments that offer ‘solutions’ in the same way government offers ‘solutions’, with a little change here and a modification there.
These comments also point finger at government and mock their ‘changes’ and ‘modifications’ as if they know any better than anyone else how 25 odd million independent minds may respond.

I am surprised that no one is offering up “why don’t we do nothing?”, “I mean lets get 80% of the government out of it, with these sorts of savings they don’t need to come scrounging around looking for taxes or how they will pull a few levers and push some buttons to put in a new ‘fix’ that won’t stay fixed” and this problem may never have needed to exist

I am not saying I think I know any better than the next person, I am humble enough to realise I know next to nothing, it just surprises me that in a country where we claim to embrace capitalism people seek to control everything and not let the ‘invisible hand’ express our thinking for us

In the planet’s sixth largest country by land mass with an area that’s almost as great as that of the USA, about 50 per cent greater than Europe, and 32 times greater than the United Kingdom but with 1/3rd the population….. we have artificial land shortages??? What sort of corrupt idiots run this place?

We should not should take these statistics and then surmise as some have done above that Adelaide has the smallest average land size, as this is most unlikely to be true. RP Data have used sales data for vacant land. Once a home is built on land and re-sold it will not be included in the charts provided. This means that from the data provided you can only say that for X particular year, the average area was Y and the median price per square metre was Z. You cannot draw any correlation between those sales and the general population of the region. Think about it…what proportion of sales in any city last year were vacant land? Median Sale Price Data is very deceptive, as it focuses only on those properties that have sold, rather than on the market as a whole. For instance, where a very large subdivision sells quickly over a year, this can significantly distort the figures.

Yes, but the data are an important indication of what is happening in the housing market, and why. If new sections are getting smaller and smaller and more and more expensive at the same time, then you can bet that the price of all the existing stock of housing is being forced up too. Of course if land is the main thing that is being made expensive, then older homes on large lots will be inflated very much in price compared to what they used to cost.

This is why “median multiples” which DO reflect the selling price of “all ages of homes” in the real estate market, are so high in Australian cities. A median multiple of 3 is “affordable”. Australian cities range from 6 to 9.

Another stupid “unintended consequence” of urban growth constraint policies, which we see in the above data, is that density is massively increased way out at the urban fringe because the lots out there are much smaller than the historic norm for the suburbs closer to the urban centre. Patrick Troy pointed this out in his excellent 1996 book, “The Perils of Urban Consolidation”. So has the great Alain Bertaud, in his papers on “the Spatial Distribution of Density”.

Troy is the Australian academic who should have been an international celebrity, not that smart-growth duo Peter Newman and Jeff Kenworthy. Australia does not lack people who have been right on this from way back. Patrick Troy; Ray Brindle, Alan Moran, Bob Day, John Muscat, Ross Elliott, Geoffrey Booth, and Joe Flood.